Chocoholic

Kraft’s $19 bln purchase of its UK peer creates a giant with 15 percent of the confectionery market and scale economies to rival Mars. Smaller Hershey and Ferrero are likely to want to bulk up. But Nestle, which let Cadbury fall, may be rethinking its ambitions in the sector.

Context News

Cadbury recommended an 11.7 billion pound takeover offer from U.S. rival Kraft Foods, valuing the UK confectioner's shares at 850 pence including a special dividend of 10 pence per share.

The offer is 500 pence in cash and 0.1874 new Kraft shares, worth 340 pence based on Kraft's closing stock price of $29.58 on Jan. 15 and an exchange rate of 1.63 dollars to the pound.

Kraft said the deal would generate annual pretax cost savings of $675 million (414 million pounds) within three years of completion, at a oneoff cost of $1.3 billion. It also expected "meaningful" revenue synergies.

The transaction, Kraft added, would deliver a "midteens" return on investment "within an acceptable time frame", which was "well in excess" of the group's cost of capital.

The enlarged group will have 14.8 percent of the global confectionery market, versus 14.6 percent for Mars of the United States, 7.8 percent for Switzerland's Nestle and 4.5 percent each for Italy's Ferrero and U.S. Hershey, according to a recent Kraft presentation.

A breakfee of 117.7 million pounds is payable to Kraft if Cadbury recommends a competing offer.